Royal Bank of Canada (TSE:RY) Will Pay A Larger Dividend Than Last Year At CA$1.38

The board of Royal Bank of Canada (TSE:RY) has announced that it will be paying its dividend of CA$1.38 on the 23rd of February, an increased payment from last year's comparable dividend. This takes the annual payment to 4.1% of the current stock price, which is about average for the industry.

Check out our latest analysis for Royal Bank of Canada

Royal Bank of Canada's Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Royal Bank of Canada has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 51%, which means that Royal Bank of Canada would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 13.1% over the next 3 years. Analysts estimate the future payout ratio will be 48% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Royal Bank of Canada Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was CA$2.52, compared to the most recent full-year payment of CA$5.52. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Royal Bank of Canada May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 4.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.4% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

Royal Bank of Canada Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 10 Royal Bank of Canada analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.